Brainstorming Ideas: Reduce the Rate of Cost for the Input Used to Produce the Output
Reduce rates paid for the Input (I), which reduces the total number of I. This action reduces the amount of input used for a particular ICD because using an input with a lower rate of cost is equivalent to using a fraction of the original input. A less expensive person, one with a lower rate of cost per time worked, is equivalent to the work center’s using only a fraction of the original input (I). For example, a person earning $10/hour is effectively half of the person earning $20/hour.
C. Change the components of the rate of costs to reach a lower total rate:
Sometimes it is possible to break the price of a purchase into its component parts. Then the company may seek to substitute a less expensive component for a more expensive component to reduce the effective rate the company pays on its purchases.
1. Warnings and advice
2. Minimum performance required for the standard rate
3. Optional components of the rate paid
4. CHANGE THE BASIS OF PAYMENT
- Make payments variable vs. fixed Examples>>
- Make payments fixed vs. variable Examples>>
- Change the basis of the variable payment Examples>>
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